Will the US Economy Collapse Soon?
SputnikNews.com
28.05.2015
After a weak first quarter, America’s financials are bloated while the real economy is barely a step away from recession, however, the overall economy is closer to a lengthy stagnation rather than a full-blown demise.
Kristian Rouz – US economy has not fared well in 2015 thus far, staggering and almost nearing a halt in Q1 as the federal government has been gradually reducing its investment in the non-financial sector.
As the US federal debt-to-GDP ratio is near 100%, Washington is consciously taking steps away from the Keynesian demand-side economics, decreasing its involvement in stirring efficient demand, in favour of a gradual return to the economic ‘normality’ of supply-side economics, yielding greater opportunities to private incentive. The question is whether the US economy is able to withstand the challenges of such a transition.
After the US Fed made clear the US borrowing costs would increase this year, presumably in September, one of the hotly debated issues of the moment has been whether such a change in economic policy will result in a dramatic downturn for the world’s first economy. Indeed, as the US economy is a debt-fueled one, with large part of its expansion attributed to the increased borrowing, more expensive loans might result in a decline in business activity and effective consumer demand. Simultaneously, the dollar, now at its 12-year highest, is bound to strengthen even more in case the base interest goes up, resulting in a significant loss on global competitiveness of the US enterprises, especially their overseas divisions – something we already witnessed on a smaller scale in Q1.
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